Washington has déjà vu, not just vertigo, at edge of ‘fiscal cliff’

Two years, many budget battles and one presidential election later, Washington is right back where it started.

Congress returns to Capitol Hill next week to begin, in earnest, the partisan fight over the “fiscal cliff.” But for all the drama and developments of the 112th Congress, the fiercest dispute of the 2012 lame duck is shaping up to be the same divisive question that dogged the post-election debate of 2010: whether to hike income tax rates on the wealthiest Americans.

Then, President Obama and the Democrats urged an expiration of the Bush-era tax rates on the highest earners as a way to generate federal revenue and cut deficit spending — exactly the same argument they’re making now. 

Republicans howled, warning that a tax hike on upper incomes would affect thousands of small businesses, thereby crippling the job market in the midst of an unemployment crisis — precisely the same warning they’re sounding this month.

{mosads}And while Congress faces a longer list of issues in 2012 versus 2010 — not least of all the automatic sequester cuts to defense and domestic spending scheduled to hit in January — the parties are largely in agreement when it comes to avoiding those triggers. It’s the issue of tax rates for the wealthy that’s again emerged as the central policy disagreement, and both sides have been quick this month to reclaim their turf.

“This was a central question during the election,” Obama said just three days after his victory. “It was debated over and over again. And on Tuesday night, we found out that the majority of Americans agree with my approach.”

Not so fast, said House Speaker John Boehner (R-Ohio), who will retain the gavel in the next Congress. 

“The American people want solutions — and tonight, they’ve responded by renewing our House Republican majority,” Boehner said on election night. “With this vote, the American people have also made clear that there is no mandate for raising tax rates.” 

In 2010, Obama — fresh off of a midterm “shellacking” at the hands of Republicans — bent to GOP demands to keep the rates low for all income levels. But he also vowed that he wouldn’t do it again, and two years later is insisting that the upper-income rates — currently 35 percent — increase at the end of the year, as scheduled.

“What I said at the time is what I meant, which is this was a one-time proposition,” Obama said during his first post-election press conference. “And what I have told leaders privately, as well as publicly, is that we cannot afford to extend the Bush tax cuts for the wealthy.”

To be sure, some of the dynamics have changed in the two years since the last lame-duck debate. Most notably, Obama won a resounding reelection that gives him much more leverage (some Democrats say a mandate) this time around.

There are also some cracks emerging in the conservative opposition to tax hikes on the wealthy. Just days after Obama’s reelection, Weekly Standard editor Bill Kristol suggested that Republicans should embrace a “serious debate” on deficit reduction that includes a tax hike on the nation’s highest earners. 

“I don’t really understand why Republicans don’t take Obama’s offer to freeze taxes for everyone below $250,000 — make it $500,000, make it a million,” Kristol said during a “Fox News Sunday” appearance. “Really? The Republican Party is going to fall on its sword to defend a bunch of millionaires, half of whom voted Democratic and half of them live in Hollywood?”

Still, most conservative voices — including the influential anti-tax crusader Grover Norquist — are keeping the pressure on Republicans to stay united against rate hikes. And the principal GOP negotiators in the fiscal cliff debate — Boehner and Senate Minority Leader Mitch McConnell (Ky.) — have given no inkling that they’re prepared to buck that message. 

Indeed, while Boehner has signaled a post-election willingness to accept higher federal revenue, he’s insisted that it be generated by closing loopholes and deductions and growing the economy—– not by increasing marginal rates.

“Raising tax rates is unacceptable and frankly it couldn’t even pass the House,” Boehner told Diane Sawyer of ABC News this month.

Democratic leaders, meanwhile, have hinted that they won’t insist the top rates go back as high as the Clinton-era level of 39.6 percent, as long as Congress finds a way to make up the revenue difference elsewhere in the budget. 

“I’m fairly agnostic about certain things. I just want to have something that is fair and that will work,” House Minority Leader Nancy Pelosi (D-Calif.), one of the chief fiscal cliff negotiators, said last week. 

Negotiators also have some wiggle room on the definition of “wealthy” for the purpose of taxes. Obama has been consistent in his push to set the threshold at $250,000. But, like the conservative Kristol, some Democrats have suggested the figure be higher, and many political experts expect the limit to creep upwards during the course of the debate. 

Without congressional action, the Bush-era tax rates will revert to the higher Clinton-era rates for all incomes on Jan. 1. With that in mind, some Republicans are acknowledging that Obama has greater leverage heading into the stretch. 

“The president has a whip in his hand,” Rep. Tom Cole (R-Okla.) told MSNBC’s Chris Jansing on Wednesday. “If he wants rates to go up, he can raise them on everybody.”

Whether he does so remains the central question of December.